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Australia’s Countdown to Free Trade

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Pacific Money

Australia’s Countdown to Free Trade

Prime Minister Tony Abbott is determined to conclude some long-running negotiations. Which country will be first?

After declaring the nation “open for business,” Australian Prime Minister Tony Abbott has set a target of achieving free trade deals with China, Japan and South Korea within just 12 months. Can the recently elected leader succeed where his predecessors failed?

Having stated at the APEC summit in Bali that he wished to swiftly conclude eight years of negotiations with China, Abbott told reporters at last week’s East Asian Summit in Brunei that he was adding the nation’s second and third-biggest trading partners to the target list.

“If you don’t set some kind of target, you don’t have the incentive to get things done,” he said. “In the case of the China agreement, that has been meandering along since 2005, so it is very important that we…bring it to a conclusion.

“The Japan and Korea free trade agreements (FTAs) have been similarly in train but unresolved…let’s give ourselves 12 months to bring these agreements to a satisfactory conclusion.”

Talks on an FTA with China commenced in April 2005, with a joint feasibility study predicting potential gains of $18 billion for Australia and $64 billion for China over a 10-year period. Two-way trade between Australia and China totalled A$125 billion in fiscal 2012, ahead of the A$71 billion traded with Japan and the A$32 billion with South Korea.

Abbott met with the leaders of all three key nations at the Brunei summit, and is expected to follow up with official visits in the first half of 2014. Highlighting his government’s trade push, on Monday, Australian Foreign Minister Julie Bishop arrived in Tokyo as part of a six-day visit to Japan, South Korea and Hong Kong aimed at promoting the “timely conclusion of two vital free trade agreements.”

Stumbling Blocks

Despite its ambitions, Abbott’s government faces a number of stumbling blocks to its goal, including resistance to foreign agricultural investment from Coalition partner, the Nationals.

While Beijing has reportedly lobbied for the same A$1 billion threshold it has with U.S. investment, Abbott’s government has committed to tightened scrutiny of Chinese investment, including reducing the general threshold for review of agricultural investment to A$15 million from the current A$248 million and publishing a register of foreign land and agribusiness holdings.

Other sticking points include China’s desire to promote domestic agricultural production by sheltering it from imports, along with specific barriers to entry in “around a dozen sectors” to aid state-owned enterprises.

Similarly, talks with South Korea have reportedly stalled over Australian agricultural exports and Seoul’s insistence on investor-state dispute resolution clauses, a deal-breaker for Australia’s previous government.

However, the Coalition has reportedly pledged to review the issue, with Australian farmers concerned over losing market share following South Korea’s trade agreements with the United States and European Union.

Japan First?

Meanwhile, diplomatic sources said an FTA with Japan was likely “within six months,” following the decision of both sides to postpone talks ahead of respective elections.

According to the sources, the recent election successes of Japanese Prime Minister Shinzo Abe and Abbott have given the two pro-trade leaders a window of opportunity, as neither is likely to face the polls again for another two to three years.

Current stumbling blocks concern Australia’s 5 percent tariff on Japanese auto imports and Tokyo’s 38.5 percent tariff on Australian beef.

However, Melanie Brock, chair of the Australian and New Zealand Chamber of Commerce in Japan (ANZCCJ), said the mood in Tokyo had changed.

“In terms of how Japan views trade deals, there’s been a massive shift since Abe made the announcement about joining the TPP [Trans-Pacific Partnership],” she told The Diplomat from Tokyo.

Despite opposition from the farm lobby, Brock said the business community and Japanese public was “supportive of Japan taking its rightful place at the negotiating table,” providing farmers were supported.

“There’s a genuine will on the part of Japanese politicians and bureaucrats. The TPP is complex and difficult and needs to run its natural course, but the FTA with Australia is something that Japan wants and Australia does too,” she said. “Given the progress that’s been made and the number of negotiations with Japan, we would expect it would be earlier than [the FTA with] China.”

The Abbott government’s prospects of achieving its ambitious target have been backed by an unlikely source in former trade minister Craig Emerson. “If anyone in the Abbott cabinet can make progress on the various deals, without surrendering Australia’s sovereignty to private corporations, trade minister Andrew Robb can,” he wrote in The Australian.

For Abe, an FTA with Australia could help speed the progress of the bigger TPP agreement – and that elusive “third arrow” of Abenomics.